How Institutions Support Markets
CORPORATIONS
Combine capital and labor, encourage risk
by limiting liability, and have continuity beyond
individual lives.
THE MARKET
JUDICIAL
Protect property rights, encourage
investment by making dispute resolution
predictable.
REGULATORY
Protect the public and investors from
dishonesty, danger, and fraud.
CULTURAL
Impart values, habits, and norms in family,
religious, or educational institutions.
Inform the public and stimulate
commerce with advertising.
MEDIA
POLITICAL
Make economic policy, collect taxes, provide social safety
nets, check and balance business power.
FINANCIAL
Mobilize capital for saving, borrowing,
and lending.
17 Joseph E. Stiglitz, Globalization and Its Discontents (New York: W. W. Norton, 2002), p. 140.
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Chapter 1 The Study of Business, Government, and Society 7
therefore, be managed to make a profit. A categorical statement of this point comes from Peter Drucker: “Business management must always, in every decision and action put economic performance first.” 18 Without profit, business fails in its duty to society and lacks legitimacy.
The third element in society is material things , including land, natural resources, infrastructure, and manufactured goods. These shape and, in the case of fabricated objects, are partly products of ideas and institutions. Economic institutions, together with the extent of resources, largely determine the type and quantity of society’s material goods.
The BGS field is the study of interactions among the three broad areas defined above. Its primary focus is on the interaction of business with the other two ele- ments. The basic subject matter, therefore, is how business shapes and changes government and society, and how it, in turn, is molded by political and social pres- sures. Of special interest is how forces in the BGS nexus affect the manager’s task.